The federal government places a burden on senior citizens who would like to stay in the workforce: The way Social Security is currently structured, seniors continue to pay full payroll taxes but will almost certainly never receive back as much money in benefits. One study found that near-retirees only receive an extra 2.5 cents back through Social Security benefits for every additional dollar they pay into the system. Thus, seniors are incentivized by the government to quit working as soon as they hit retirement age. This deprives senior citizens of additional income and meaningful work, and it deprives the American economy of their incredible skills and experience.
Andrew Biggs of AEI has proposed a better way forward, and now that idea has been picked up by presidential candidates Jeb Bush, Marco Rubio, and Chris Christie. Back in 2012 Biggs proposed in this Wall Street Journal column to exempt senior citizens from paying payroll taxes. This would allow older workers to retain more of their earnings, incentivizing them to stay in the workforce.
This is technically a tax cut, which would normally cut government revenues by billions of dollars a year. And while this policy doesn’t pay for itself, the additional government revenue coming from increased income and other taxes on wages greatly reduces the budgetary impact of the payroll tax cut.
In Jeb Bush’s tax reform package, he proposes removing the 6.2% employee payroll tax on workers over the retirement age, giving older workers an immediate boost to their paychecks and encouraging them to stay in the workforce longer.
Marco Rubio has introduced legislation along with Senator Mike Lee (R-UT) that would cut the entire Social Security payroll tax for all seniors aged 65 and older. The “Let Seniors Work Act” would also repeal the Retirement Earnings Test.
New Jersey Governor Chris Christie laid out a series of entitlement reforms in a speech in April, and a key reform is cutting payroll taxes for all workers over the age of 62. Christie also lays out several other important ideas in order to ensure Social Security and Medicare remain solvent for current retirees, the Baby Boom generation, and all younger Americans.
You can read Andrew Bigg’s original proposal for cutting payroll taxes for older workers here.
Phillip Klein of the Washington Examiner has also looked at Bush’s proposal, calling the payroll tax cut “The most interesting part of Jeb Bush’s tax plan.” You can read his column here.